By Steve Schain , Senior Attorney at Hoban Law Group . \n Spanning 31 states and generating $7.2 billion in 2017, the US's legalized marijuana industry's greatest obstacle, banking, was significantly reduced according to the Department of the Treasury's ("Treasury") Financial Crimes Enforcement Network's ("FinCEN") September 30, 2017 "Marijuana Banking Update". \n While still only a fraction of nation's 11,954 regulated banks and credit unions provide marijuana related businesses ("MRBs") with financial services, this 26% increase in financial institutions reflects a staggering growth and proof that a cost effective solution exists to dealing with bankings' thorniest issue: profitability in light of compliance and suspicious activity reports (“SARs”) requirements. \n Marijuana Banking Law and Regulation \n Because the Comprehensive Drug Abuse Prevention and Control Act, 21 U.S.C. §§ 801, Et. Seq (1970) ("CSA") prohibits “manufacture, distribution, and dispensation" and any transfer or deposit of monies yielded from cannabis sale may be deemed "money laundering" in violation of the Currency and Foreign Transactions Reporting Act, 31 U.S.C. §5311-5330 ("BSA"), most banks, credit unions, and credit card companies (hereafter, collectively referred to as "Financial Institutions") refuse to provide marijuana growers, processors or dispensers with financial services. \n Although several Department of Justice "policy clarifying" memoranda restrain enforcing the CSA in legalized marijuana states (including the August 29, 2013's Cole Memorandum ("Cole Memo") which lists "8 enforcement priorities"), any transfer or deposit of monies yielded from cannabis' sale may deemed "money laundering" in violation of 18 U.S.C. §1956 for the "seller" and a BSA violation by the financial institution. \n In its February 14, 2014 dated "Guidance", FinCEN clarified that through adhering to institution specific factors (ex. particular business objectives, evaluation of risks associated with offering particular product or service, and capacity to effectively manage risks), banks may provide financial services to MRB consistent with BSA obligations by: (i) obtaining and reviewing MRB's information from licensing and enforcement authorities including application, license, and registration documentation; (ii) developing an understanding of business' normal and expected activity including types of to-be-sold product and to-be-served customers ( e.g. , medical versus adult use); (iii) monitoring publicly available sources for adverse information about business and related parties; (iv) monitoring for suspicious activity, including Guidance's specified red flags; and (v) routinely updating customer due diligence information commensurate with risk (“FinCEN Guidance”). \n These "FinCEN Guidance 'red flags' indicating state law or Cole Memo priority violations" include MRBs: appearing to use license as a pretext to launder "criminal activity derived funds"; inability to demonstrate a licensed business operating consistently under state law or legitimate source of significant outside investments; concealing or disguising cannabis involvement; are, or have been, subject to a marijuana -related law or regulation enforcement action; engaging in international or interstate activity including making/receiving out-of-state cash deposits or interstate transfers; or purporting to be a “non-profit” while engaged in commercial activity inconsistent with classification. \n Massive Increase In MRB Banks \n For the period ending September 30, 2017, FinCEN's Marijuana Banking Update reports that 400 banks provided financial services to MRBs reflecting a 26% increase over 12 month span. FinCEN measures the number of MRB banks based on "Guidance required SARs filing" triggered by "red flags" when a bank providing financial services to an MRB knows, suspects, or has reason to suspect that a conducted or attempted transaction: (i) involves - - or is an attempt to disguise - - funds derived from illegal activity; (ii) is designed to evade BSA regulations; or (iii) lacks a business or apparent lawful purpose. Because all MRB financial transactions involve funds derived from illegal activity. banks must file a “Limited”, “Priority” or “Termination” SAR with every deposit, withdrawal, or transfer. \n First, if providing financial services to a business not violating state law or any Cole Memo priority, a bank must file “ Marijuana Limited SAR". Second, if reasonably believing that a MRB violates state law or Cole Memo priority, financial institution must file " Marijuana Priority SAR". Third, if "facilitating effective anti-money laundering compliance" requires terminating a "marijuana-related business" relationship, a bank must file a “ Marijuana Termination SAR". \n Because of the enormous BSA and FinCEN Guidance compliance costs, most banks are incapable of profitably provided financial services to MRBs. Presently before the House Financial Services Committee, the Secure and Fair Enforcement Banking Act, 114 HR 2076, proposes amending the BSA through issuing "modified SARs reporting regulations" that do not "inhibit" providing financial services to MRBs.